1 Simple Way to Outlive Your Money

In helping you answer the burning question, "Will I outlive my money?", the financial planning industry loves to show you charts and graphs, tell you the optimal rate of withdrawal from your nest egg, toss around terms like "your number", and shove 89-page Monte Carlo simulations at you. In the proper context, these methods have true merits, but there's one simple way to increase your odds of achieving more dollar signs than heartbeats.

A much longer Golden horizon
According to the CDC, the average male in 1950 was expected to live to age 65. For 2020, life expectancy is projected for nearly 78 years for males and 83 years for females. With increased longevity, our retirements now span for Golden Decades, not just Golden Years.

As a result, inflation is an investor's worst enemy. In 1950, the average cost of a new car was $1,510. Today, a new ride will cost you $30,000 on average. One pound of hamburger meat in 1950 cost $0.30; today it's roughly $4.

But don't fret. Strong, stable, growing dividends are your best defense for combating inflation, allowing you to pay for groceries, gas, and health care at future prices.

Need more invitation to ponder dividend payers? Consider this: From 1999 to 2010, stocks with a market cap above $1 billion returned negative 3.2%. Stocks with the same market cap that paid at least a 3% dividend returned a widely impressive 28%.

Let's take a look at dividend-paying companies that measure up to the following yardsticks:

  • Strong yield -- Companies shelling out dividend yields greater than 3%.
  • Stable yield -- Companies with dividend payout ratios less than 60% signaling room for the company to increase its dividend in the future.
  • Growing yield -- Companies with dividend growth rates that outpace inflation (roughly 4% annually on average over the past century).
  • Diversified company with strong, competitive position -- Brand dominance or special niches help these tenacious companies sustain long-term profitability.

Five companies that fit these criteria to a tee are listed below.

Company

Dividend Yield

Dividend Payout Ratio

Dividend Growth Rate

(5-Year Average)

Clorox (NYSE: CLX  ) 3.5% 58% 14%
McDonald's (NYSE: MCD  ) 3.1% 51% 20%
NextEra Energy (NYSE: NEE  ) 3.4% 45% 8%
PepsiCo (NYSE: PEP  ) 3.0% 55% 11%
BlackRock (NYSE: BLK  ) 3.5% 46% 26%

Sources: Yahoo! Finance, Financial Times.

Of course, companies may increase, decrease, or suspend their dividends at any time.

Clorox
Home to brands including Glad, Brita, Burt's Bees, Tilex, and Formula 409, Clorox cleans up nicely with a four-star rating from our CAPS community. CEO Don Knauss reported 4% top-line sales growth in the most recent quarter, attributed in part to successfully passing higher input costs to consumers. With dividends reinvested, this 99-year-old company enjoyed a stellar 9.5% average annual return during the past decade.

McDonald's
The company's ubiquitous brand is the reason it's firmly secured a top 10 spot on Interbrand's "Best Global Brands" since the ranking's inception in 2001. McDonald's has undergone a refresh, placing renewed emphasis on brand imaging, premium products, healthier menu options, and remodeled restaurants. And these efforts have paid off: Last year, McDonald's enjoyed its ninth consecutive year of same-store sales growth and secured the top spot as the best-performing company in the Dow.

NextEra Energy
A literal powerhouse, NextEra is the alternative-energy industry leader. It's the largest U.S. generator of wind and solar power. NextEra recently partnered with General Electric in the acquisition of the Desert Sunlight Solar Farm, a 550-megawatt project in sunny Southern California. The company also plans to expand its total electricity capacity from wind by 14% in 2012. This strong, stable cash flow generator currently trades at a P/E ratio of roughly 14.

PepsiCo
Behemoth beverage and snack maker PepsiCo houses major brands including Pepsi, Mountain Dew, Tropicana, Gatorade, Aquafina, Fritos, Lays, Ruffles, and Quaker Oats. PepsiCo not only boasts 22 brands each generating more than $1 billion in sales, but also has doubled its number of billion-dollar brands since 2000. Investors often overlook Pepsi's Frito-Lay division, which dominates the salty snack category across the world. And while Coca-Cola, not PepsiCo, is a major Olympics sponsor this year, studies show PepsiCo emerged as a beneficiary in years past.

BlackRock
BlackRock provides asset management services to institutional and individual investors. Its business model is a very profitable one of recurring revenue. With gross and operating margins significantly better than its peers, BlackRock trades at an enticing forward P/E ratio of just shy of 12. It has a stellar dividend growth rate and, at its current payout ratio, can reward shareholders with future dividend increases.

If these five dividend payers aren't enough for you to ponder, check out even more in one of our free reports. It's teeming with nine dividend stocks, including one medical equipment company that boasts not only a 98% customer satisfaction rating but also doubled its dividend payout since 2006. This report won't be available forever, so get your free copy today.

Fool contributor Nicole Seghetti owns shares of NextEra Energy and PepsiCo. Follow her on Twitter @NicoleSeghetti. The Motley Fool owns shares of PepsiCo, Clorox, and McDonald's. Motley Fool newsletter services have recommended buying shares of PepsiCo, McDonald's, and BlackRock and have recommended creating a diagonal call position in PepsiCo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 10, 2012, at 10:01 AM, mapbc wrote:

    If you out live your money doesn't that mean you're alive and out of money?

    That's easy an you don't need investment advice for that.

  • Report this Comment On August 17, 2012, at 12:50 PM, jrm89 wrote:

    Yes, the title of this article should be something more like "1 simple way to make your money outlive you"

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